Interest rates

Australian firm BNPL Openpay pauses in US market as interest rates climb

  • Openpay will “materially” reduce the American workforce
  • BNPL’s business model at risk as interest rates rise

July 1 (Reuters) – Openpay Group (OPY.AX), an Australian buy-it-now, pay-later (BNPL) company, ceased operations in the United States four months after describing it as its main growth market , the latest casualty among consumer finance startups as rising interest rates bite.

Investment in an “Americanized” platform caused Openpay’s losses to rise 65% in the first half and the company had been looking for an investor to help fund its US expansion.

But current economic and market conditions and “likely required capital investment” have forced Openpay to stop lending and cut most of its US unit’s workforce, it said in a statement.

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BNPL’s business model was born out of a very low interest rate environment that allowed the industry to raise funds at relatively low cost and offer point-of-sale loans to customers at venues. of online sales.

But rising interest rates have put this business model in jeopardy. Read more

“These businesses are clearly not profitable, and to achieve profitability they need to grow, but to grow you need more capital and rising interest rates increase their cost of funding,” Tom said. Beadle, analyst at UBS.

Rising rates also put “strain on household budgets, and this increases the likelihood that a consumer will default,” he added. “They are hit on both sides.”

Zip Co Ltd, owner of the U.S. Quadpay brand, and Sweden’s Klarna, one of BNPL’s largest companies, have also cut their workforces as rising interest rates reduce retail spending and the appetite for investor risk. Read more

Sezzle Inc, another U.S.-focused Australian BNPL company that Zip is buying, said it was cutting a fifth of its workforce there. Brighte, an unlisted Australian BNPL company specializing in solar energy, told Reuters it cut 15% of its workforce this month, after canceling plans to sell its own battery array.

Other consumer finance startups have also been hit by fundraising issues. Australia’s first online-only bank, Volt Bank, announced its closure this week. Read more

Shares of Openpay rose a third to 15.5 Australian cents mid-term, but are still down 80% since January.

($1 = 1.4531 Australian dollars)

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Reporting by Byron Kaye in Sydney and Sameer Manekar in Bangalore; Editing by Subhranshu Sahu and Edwina Gibbs

Our standards: The Thomson Reuters Trust Principles.